Quadruple subscription revenue in four years- Annata

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The software company Annata made a profit of one and a half billion ISK kroner last year and had a turnover of nearly six billion ISK kroner. Subscription revenue from the company’s software solution also increased by 40% last year. Magnús Norðdahl, who took over as the company’s CEO at the beginning of the year, says the company has set ambitious goals of quadrupling the subscription revenue in the next four years, from 10 million USD to 40 million USD.

The software company Annata made a profit of one and a half billion ISK króna last year, increasing its profit by 55% from the previous year. The company’s turnover amounted to 5.9 billion ISK króna and increased by approximately one billion between years. EBITDA reached two billion ISK króna, and subscription revenues from the A365 software solution, which is the company’s main product, grew by 40%. However, Annata is far from being complacent and has set ambitious goals to multiply subscription revenues in the next four years.

“In February, I introduced a plan called 4×4. The goal is simple: to quadruple the subscription revenues of our A365 software solution in the next four years,” says Magnús Norðdahl, CEO of Annata. Last year, Annata’s subscription revenues reached 10 million USD, equivalent to about one and a half billion ISK króna. If the company’s goals are achieved, subscription revenues are expected to increase by 30 million USD and reach 40 million USD in four years.

“We are already on full throttle, and the plan is off to a good start. The employees, owners, and others involved with the company are very excited about this journey. The main focus, however, is not the destination but the journey itself. If we manage to triple our subscription revenues in four years, that would still be a great achievement, and we might even surpass the set goals,” says Magnús. “With some simplifications, the plan revolves around Annata becoming more of a software house rather than a consulting firm.”

Quadruple subscription revenue in four years 2

Magnús emphasizes a great deal of effort in fulfilling the so-called 40% rule. “If the revenue growth rate is combined with the EBITDA growth rate, and if the outcome exceeds 40%, the company becomes one of the market leaders,” he explains. “We place great emphasis on fulfilling this rule because we don’t want to rely on shareholders or lenders to invest heavily in our solution. It is relatively costly to constantly develop and improve the software solution, and it would be challenging to continually convince investors or lenders to put risk capital into it. Therefore, the company needs to have strong cash flow, good profits, and a steadily growing trajectory to sustain these investments on its own.”

Negotiate with a major distributor, Toyota

Annata develops and sells business solutions based on the Microsoft Azure cloud solution and related systems for the automotive and industrial machinery industries. According to Magnús, the company has positioned itself as an important partner within the technology ecosystem. As an indication of this, Annata is among the top 1% of Microsoft’s most important partners and ranks at the top of the list in the automotive industry. The company has long-term subscription agreements with major corporations such as Toyota, Volvo, Hitachi, and Möller Mobility Group, which imports, sells, and services VW, Audi, Skoda, and Porsche vehicles in Norway. The solution provided by Annata serves as a core system for these large companies and plays a crucial role in their operations, with over a hundred thousand users. The average contracts Annata has with its customers range in the millions of Icelandic króna per year, with the largest contracts reaching into the hundreds of millions.

“Many may not be familiar with us since we operate not in the consumer market but in the corporate market. Our solution manages and drives the entire value chain, from the production of vehicles, industrial machinery, buses, or commercial vehicles by manufacturers to importers.

Annata’s total revenues amounted to approximately 5.9 billion Icelandic króna last year, representing a 19% increase compared to the previous year.

The system covers the import and distribution channels to dealerships, which then sell the vehicles to consumers or businesses. The system also handles service requests, spare parts, and various other aspects throughout the life-cycle of the vehicle or machinery until it is disposed of or recycled. Because we cover the entire lifecycle from ‘cradle to grave, we are uniquely positioned as a behind-the-scenes engine,” says Magnús.

“We already have many top customers in the market engaged with us. In March, for example, we secured a contract with the largest distributor, Toyota, in the United States, and likely globally, to do business with us. This underscores the quality of our solution, as we were competing against many of the world’s largest software companies. We are currently working on

implementing the solution in collaboration with the world’s largest consulting firm, Accenture, which has over 700,000 employees worldwide,” he adds.

​​Exchange of seats with one of the founders

Magnús took over the reins of the company at the beginning of the year, having previously worked as the CEO of the software company LS Retail for eleven years, where he played a role in building up the company on an international level.

He has 30 years of management experience in software development, information technology, and the global pharmaceutical industry, including positions at EJS, DAC, and Tech Data. 

Magnús, became the chairman of Annata after the acquisition by the venture capital fund VEX I and its co-investor in a 50% stake in the company by its founders in February of last year, taking over the position from Jóhann Jónsson. Jóhann has since taken over as the company’s chairman from the beginning of the year. 

“I participated in the acquisition process with VEX both as an investor and advisor, and was involved in the negotiations with the founders of Annata from the beginning. Shortly after the agreements were reached, I became the chairman of the company. One of my initial tasks, along with Jóhann, the former CEO, was to start searching for his successor, as it was always planned that he and other founders would step aside from the day-to-day operations of the company after the acquisition. Eventually, we switched positions, and I became the CEO while Jóhann became the chairman,” says Magnús. 

He says that the first months in his new position have been very enjoyable. “I was already familiar with Annata before taking on the role, and I knew Jóhann and the other founders of the company quite well. I inherited a very good foundation from Jóhann. The company has been exceptionally well-managed, and its software solution is top-notch. The company has managed to attract excellent customers and has a fantastic team that knows the company and the industry inside out.”

The business is in a very good financial position and has been experiencing good growth. It can definitely be said that it has checked all the boxes.

Rearranging the cubes Magnús says his main task is to make the growth target a reality. “The founders had been running the company for about two decades. As it happens with new owners, priorities often change. My role, therefore, involves rearranging the pieces, sharpening the focus, and placing more emphasis on recurring revenues generated by A365 solution.”

The goal is for the revenues from the product itself to surpass the revenues from the service around the solution. “The reason for that is because we can scale the operation

faster, better, and wider. Our focus is to have partners and IT companies, who will take care of implementing and servicing the product without our involvement. In the meantime, we benefit from recurring revenues from the product and at the same time, concentrate on expanding and deepening our foothold in the markets we operate. We need to channel the energy and power of our sta into A365 and not into other projects that do not align with this strategy.”

Annata’s customers will not only benefit from the new strategy but also from the company itself. “With this, we are investing more in the development of the product. This allows us to be a leader in the market and ahead of the competition. Customers will benefit from all the innovations introduced into the annata365 solution. The solution has now become a cloud-based subscription service with updates happening approximately ten times a year. We run this on the Microsoft cloud solution, making it the best technological solution available in the world today.”

Interested in registering Annata on the stock market

As reported by Viðskiptablaðið (The Business Journal), following the acquisition by VEX I and the participation of investors in acquiring a 50% stake in Annata last year, shareholders have shown interest in listing the company on the market within a few years. Magnús states that one of the reasons for embarking on the 4×4 journey and focusing on recurring revenues from the cloud solution is that it is something the market understands well and values highly. “The stronger and more valuable the company is, the better it can compete in the international market.

We always have in mind that one day the company may go public or be acquired by professional investors. Therefore, we need to manage everything in a way that ensures transparency, clear processes, and efficient operations. We hope that the company will be listed on the Icelandic stock market, and hopefully, it will be successful,” says Magnús. He adds that the first step in that direction has already been taken, as professional investors have joined in the acquisition, and pension funds are among the shareholders of VEX I, the venture capital fund.

Quadruple subscription revenue in four years 3

Good that the strategy is in full swing and fully operational

“What is great about this strategy we are working with is that it is fully operational,” says Magnús, explaining why it supports Annata’s growth goals. “Electric vehicles and machinery are taking over, disrupting all processes and value chains in the industry. Electric car manufacturers like Tesla have entered the market, breaking traditional business models by selling directly to consumers rather than relying on importers and distributors.”

In addition to this, many companies utilize systems that are even 30-40 years old. “These companies feel compelled to reassess the solutions they use and replace these legacy systems to maintain competitiveness. We benefit from this, but in turn, we need to be even more agile to ensure that the processes in our solution are adaptable to these new business trends in the market.”

One of the many competitive advantages of Annata lies in having little to no “technical debt.” “Our software was recently completely migrated. Previously, it was sold through a perpetual licensing model, where companies would purchase software licenses, keep them for a long time, and update the software when it suited them or sometimes not at all. The software was then upgraded to a cloud solution and offered as a subscription. The solution is built on the latest technology from Microsoft and receives updates nearly monthly. As a result, we are in a better position compared to the competition, even though there are giants in the industry like SAP and Oracle, where these companies have much higher technical debt.”

Annata- A company of a thousand people after a decade

Due to this, Magnus states that he is very optimistic about achieving ambitious growth goals. “We have conducted a thorough analysis of the markets in the countries we are focusing on, and that is sufficient. The most important thing for us is to know which customers we want to attract and which ones we don’t.

We have created a target list of companies we wish to approach. It is also important to have a clear vision of what the company does not intend to do. We have also conducted a detailed assessment of Annata’s position compared to key competitors and believe that we are leading the pack in almost every aspect when it comes to choosing such a solution.”

Today, Annata employs around 250 employees in thirteen countries. Magnus believes that Annata could easily become a company of approximately 500 employees within five years and a company of 1,000 employees within a decade.

Disclaimer: This document has been translated from Icelandic to English and was originally published in Viðskiptablaðið.

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